Overlooked regulations, sloppy record keeping among findings of independent audit of Toledo finances

11/10/2012

An independent audit on the city of Toledo’s 2011 financial statements found problems that included overlooked regulations and sloppy record keeping, according to records obtained by The Blade.

Clark Schaefer Hackett, a certified public accounting firm based in Cincinnati, listed 19 specific problems called “current year comments,” which detailed things the city did wrong, did late, or didn’t do at all.

An additional audit report listed nine findings against the city.

City Finance Director Patrick McLean said the audit is required by state law. The firm is assigned by the state but paid for by the city. The city paid $200,000 for the audit, according to George Sarantou, chairman of council’s finance committee.

“We had nine findings in 2011, which is less than the year before,” Mr. McLean said. “There was one about payroll, and we are overhauling our entire payroll system, in part because we have recognized it has been a problem for years.”

He said the 19 “comments” are areas that should be improved, “not material weaknesses.”

Among the comments made by the firm was that city spent money without it being appropriated.

“We noted instances of appropriations exceeding estimated resources in the special assessment services, capital projects, operation grants, and general obligation debt service funds,” said the firm’s letter to Mayor Mike Bell and Toledo City Council.

The letter was dated Aug. 31 but just recently was sent to council’s 12 members.

Councilman D. Michael Collins said the letter showed a lack of seriousness concerning rules.

“This clearly defines that the entire financial controls for the city of Toledo are absent in most of the critical areas, and having invested over $15 million in a computer system that went live under the Bell administration, there is no reason almost three years later to have demonstrated the lack of discipline in handling the finances of our city,” Mr. Collins said. “I am almost appalled by all of it.”

Red flags surrounded eight contracts.

State law prohibits the city from awarding contracts with state funds to anyone with an unresolved finding for recovery issued by the Ohio auditor.

There was no evidence that the database was checked in eight out of 12 state-funded contracts.

“The city asserted that it is checking the [state auditor’s] database for all contracts but not always including documented evidence,” the report said.

The firm in its letter also said:

● The city did not advertise one contract last year for the required two consecutive weeks.

“Management indicated that it was an oversight as for the second week was inadvertently deleted,” the report said. “We also noted during testing of the HOME Investment partnerships program that, for one of the five contracts we tested, it did not contain a signed approval on the fiscal officer certificate fixed amount certifying that the funds had been properly appropriated.”

● Regarding a real estate purchase, the city last year did not obtain a signed certification from the owner that the property was vacant as required by city regulations.

● The city did not prepare a bonded indebtedness report by Jan. 1 for the previous fiscal year. The report was a month late.

● Cash receipts are supposed to be deposited with the city treasurer on the same day, but there was up to a month lag between when money was received by the sewers and drains department and the division of parks and forestry and when it was deposited.

● The Erie Street Market, a city-owned building that is vacant except for the Libbey Glass Factory Outlet store, was not retaining records showing when money was received.

● The city has not performed an inventory of its capital assets since 2009 when its current software package was implemented.

● The city lacks a formal written policy for use of city credit cards. “Further, in testing credit card transactions, we noted that the city incurred finance charges, late fees, and were not always supported by receipts,” the report said.

● In the tax department, employees can access and could alter their own tax records.

The auditors also found that city cell phones were unauthorized.

“We selected 10 cell phone users to determine if use of a cell phone had been authorized under city policies,” the report said. “We noted nine out of 10 selections did not have authorization forms on file.” The report said the city’s information technology department randomly runs reports to identify personal phone calls with city cell phones, but it does not attempt to collect any reimbursements.

The firm, in the nine findings listed in the audit, said the city did not keep supporting documents for the amount of money used in the required matching contributions for the U.S. Department of Housing and Urban Development’s HOME Investment Partnership Program. The city receives funds from the program and makes them available to developers building affordable housing.

The firm also said the city is supposed to determine a family’s income eligibility for the program and keep those records.

“We noted that one of the four applications for down payment assistance tested did not contain proper approval,” the audit said.

The firm also said the city may have improperly “charged payroll” to the federal programs “due to lack of controls.”

It also cited problems with quarterly reports that must be filed for a U.S. Department of Housing and Urban Development program called the Neighborhood Stabilization Program.

“The second and fourth quarter ... and performance reports for NSP included errors related to administrative costs that could not be accurately agreed back to supporting documentation,” the audit said.

The city’s fourth-quarter report for the federal Homelessness Prevention and Rapid Re-Housing Program “included errors related to agency disbursements with some being overstated, others understated, and certain items being excluded altogether,” the audit said.

The audit also said the city “identified misstatements in the financial statements for the year ... not initially identified by the city’s internal control over financial reporting” and that only one person was responsible for information technology security administration.

Contact Ignazio Messina at: imessina@theblade.com or 419-724-6171.